INSIGHT by CDP
〉The rate of decarbonisation by UK companies has slowed by a third for Scope 1 and 2 emissions and by 70% for Scope 3 emissions.
〉Only 62% of companies with verified emissions are in line with meeting potential 1.5° pathways, a decline from 2022. UK companies would cease decarbonising at all in three years if current trends persist.
〉Progress on the ambition of target-setting meanwhile stalls at 2022 levels, despite more companies setting targets. Businesses still plan to cut Scope 1 and 2 emissions by an average of 51% by 2030 and Scope 3 emissions by 43%.
〉Companies are found to reduce emissions at a faster rate when they have credible climate transition plans in place and link decarbonisation to financial opportunities.
The pace of decarbonisation disclosed by UK businesses slowed sharply last year in a potential blow to net zero ambitions. The average rate of emissions reductions reported by UK companies in 2023 fell to 6% per year for Scope 1 and 2 1 emissions, down from 9% per year in 2022, marking a steep one-third drop in the pace of progress. For Scope 3 [1] emissions, the decline was even sharper, by three-quarters, from 8% per year to just 2%.
The steep slowdown in decarbonisation was consistent across almost all sectors, with particularly sharp declines seen in infrastructure, services, and the food, beverage and agriculture sectors, the Bain analysis of CDP data shows. It finds that were this trend to continue, UK based companies could stop decarbonising at all within three years.
The findings 2from Bain & Company’s new report using CDP data, Accelerating UK Corporate Decarbonisationation, includes the disclosures of 1,797 UK-headquartered public and private organisations, including 943 of the companies listed in the FTSE 100 index.
The analysis shows that 38% of UK headquartered businesses are not delivering emissions reductions in line with the Paris Agreement, which seeks to limit global warming to 1.5°. Furthermore, nearly two-thirds of companies reported an increase in absolute emissions across all Scopes between 2022 and 2023. If these trends were to continue, UK–based businesses as a whole will fall behind potential 1.5° pathways within one to two years.
“UK-based companies are failing to maintain the pace of decarbonisation needed to align with a 1.5° pathway. A key driver of this is that many of the easiest emissions reductions may have already been achieved, so businesses must now grapple with harder-to-abate parts of their operations,” said Katherine Kajzer-Hughes, a partner in Bain & Company’s Sustainability practice who leads the firm’s sustainability work with UK industrial business. “Companies can still establish credible transition plans that reinvigorate their rate of decarbonisation. We find that companies that link decarbonisation with value to the customer, and to financial outcomes, can catalyse emissions reductions.”
| Progress on the ambition of target-setting stalls
The number of UK-based businesses making disclosures through CDP grew by 24% in 2023, to 1,797, the report shows. Within that, the total number of companies setting emissions targets also grewby around two-fifths last year.
But overall, still only some 30% of disclosing organisations last year had targets (whether science-based or otherwise) leaving this proportion unchanged from 2022. Only 29% of all disclosing companies have targets in place for reducing Scope 1 and 2 emissions, while only 19% have targets for Scope 3. Companies are also predominantly concerned with setting near-term targets, with only 9% reporting goals beyond 2030.
Progress on the ambition of target-setting meanwhile stalled at 2022 levels, the Bain-CDP report notes. UK–based businesses still plan to cut Scope 1 and 2 emissions by an average of 51% by 2030 and to cut Scope 3 emissions by 43% in the same timeframe.
Dexter Galvin, Chief Commercial and Partnerships Officer at CDP, said: “It’s great to see a 24% increase in UK disclosure, but there is no excuse for a slowing or stalling of progress when it comes to decarbonisation; the stakes are far too high. Disclosure – on all scopes and across all environmental issues – is key to providing companies with the full picture and the foundation upon which to take meaningful climate and nature-positive action. UK businesses must step up on assessing value chain emissions, putting credible transition plans in place and seizing the financial opportunities that go hand in hand with effective decarbonisation.”
| Transition plans to drive decarbonisation progress
The report points to the need for credible transition plans, finding that UK-based companies with climate transition strategies achieved decarbonisation rates of 8% per annum, compared to an annual rate of 4% among peer businesses without plans.
Based on CDP’s guidelines for a credible transition plan4, Bain has identified a series of key accelerators to decarbonisation. The report highlights 12 separate measures that can strengthen climate transition plans and drive a decarbonisation rate that is three to six percentage points faster. These measures span governance; financial planning, risks, and opportunities; value chain engagement; metrics and targets. Three measures in particular are found to be key to delivering higher rates of decarbonisation:
- Engaging with customers accelerates the pace of decarbonisation by 3.5 percentage points.
- Using science-based targets delivers a higher rate of decarbonisation by 2.9 percentage points.
- Identifying financial opportunities catalyses emission reduction by 2.4 percentage points. In 2023, companies identified almost £470 million from decarbonisation opportunities, a 44% increase compared to 2022.
[1] Scope 1 carbon emissions are those which a company makes directly, while Scope 2 are those which come from the energy which it purchases to run its operations. Scope 3 emissions are those which are emitted by other businesses in a company’s supply chain, as well as by customers using the company’s products, and are increasingly seen as critical to a company’s understanding of its climate impact.
[2] The data in this research includes only a subset of companies which disclosed through CDP in 2023. The number of UK-based disclosing businesses grew by 24% from 2022 to 2023, with 1,797 organisations disclosing last year through CDP. This increase was largely driven by smaller public and private companies. In 2023, 94% of FTSE 100 companies disclosed through CDP on climate.
[3] Includes non-UK headquartered companies in the FTSE100 index. These companies are excluded for the remainder of the analysis, which focuses on UK-headquartered companies only. In 2023 a total of 82 and in 2022 a total of 81 UK-headquartered companies listed in the FTSE 100 index disclosed through the CDP climate questionnaires.
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